John Paulson is apparently opening up Paulson & Co to retail investors by making two new versions of his fund Ucits compliant.
Ucits (Undertaking for Collective Investment in Transferable Securities) are a type of collective investment (or fund) that allows financial institutions to operate freely throughout the European Union.
They are more tightly regulated than traditional hedge funds, but freely open to retail investors in the same way that mutual funds are.
The body that regulates them does so through an EU directive that is already in place, which means that the Ucits funds will be exempt from the heady new rules to regulate hedge fund managers that is currently under consideration by EU lawmakers, according to the Financial Times.
HFM Week uncovered the news that Paulson would open two new Ucits funds with Barton Biggs, the hedge fund manager of Traxis Partners.
One of the funds is expected to be called the DB Paulson Fund and will go live in the next few months via Deutsche Bank‘s increasingly popular Platinum Ucits platform.
So Paulson wants access to retail investors. Anyone can buy Ucits. To invest in Paulon’s main funds however, an investor needs a much larger minimum investment.
The two Ucits funds will be profitable for two reasons.
The first is that Ucits allows managers to tap into a market that ordinarily wouldn’t be interested in (EU investors) or able to afford investing hedge funds (retail investors). And the second is that fees they collect from them are quite generous.
So it’s not really surprising that Ucits are really blossoming right now.
From HFM Week:
Assets managed within the Newcits universe have increased by 50% in the last six months alone, Ken Heinz, president of Chicago-based data provider Hedge Fund Research (HFR), told HFMWeek… US investment bank Morgan Stanley has also opened up its own Ucits offering to external managers.
The good thing about them is that they have very low minimum investments and very good liquidity terms. But there’s reason to believe they won’t be around for too long (at least not in their current form).
Ucits incentive fees are based on every quarters return, regardless of when you bought the fund. The fees are extremely high.
One hedge fund analyst told us that investors should be careful because the ability of these funds to provide liquidity quickly is unclear.
So, retail investors who are interested should read the documents carefully.
That said, HFM Week says that Paulson has made the two new funds Ucits compliant.
Apparently other big money managers are also interested in making Ucits versions of their funds, too.
Others that are already in Ucits include:
$19bn BlueCrest Capital (raised $600m earlier this year for a version of its algorithmic BlueTrend fund), GLG, Man Group’s AHL, and Winton Capital.